Investors are expected to increase their activity in the exchange-traded fund market partly to circumvent US rules restricting short-selling in a handful of financial stocks that have been extended, according to traders.

The Securities and Exchange Commission, the US market regulator, last week said tighter rules requiring those borrowing shares in 19 financial companies for short sales would apply for a further two weeks until August 12, but not beyond. The rules were introduced as a precautionary measure to support the financial system, and bank shares in particular, amid continuing losses and writedowns.

Volumes in exchange-traded funds linked to the financial sector stocks affected by the short-selling rules have risen since the rules were first introduced in late July.

Daily trading volumes in the most widely followed US financial sector ETF, the Financial Select Sector SPDR Fund, also known as the XLF, rose almost fivefold in mid-July in anticipation of the restrictions. Volumes rose as high as 527 million shares a day, up from an average daily volume year-to-date of 135 million.

Short interest volumes in the XLF, which has been rising since May, remain at historical highs of around 200 million shares.

Traders said that some of this short activity could have been driven by investors wishing to sidestep the potentially costly pre-borrow rules put in place by the SEC.